Abound Solar and Solyndra: Chinese Edition

Remember Solyndra and Abound Solar, two of the defunct solar companies funded under the 1705 loan program? Well, we are likely to see a lot more solar companies go under, especially in China. The New York Times reports:

China in recent years established global dominance in renewable energy, its solar panel and wind turbine factories forcing many foreign rivals out of business and its policy makers hailed by environmentalists around the world as visionaries.

But now China’s strategy is in disarray. Though worldwide demand for solar panels and wind turbines has grown rapidly over the last five years, China’s manufacturing capacity has soared even faster, creating enormous oversupply and a ferocious price war.

The result is a looming financial disaster, not only for manufacturers but for state-owned banks that financed factories with approximately $18 billion in low-rate loans and for municipal and provincial governments that provided loan guarantees and sold manufacturers valuable land at deeply discounted prices. . . .

In the solar panel sector, “If one-third of them survive, that’s good, and two-thirds of them die, but we don’t know how that happens,” said Li Junfeng, a longtime director general for energy and climate policy at the National Development and Reform Commission, the country’s top economic planning agency.

Mr. Li said in an interview that he wanted banks to cut off loans to all but the strongest solar panel companies and let the rest go bankrupt. But banks — which were encouraged by Beijing to make the loans — are not eager to acknowledge that the loans are bad and take large write-offs, preferring to lend more money to allow the repayment of previous loans. Many local and provincial governments also are determined to keep their hometown favorites afloat to avoid job losses and to avoid making payments on loan guarantees, he said.

(Thanks to Alex Tabarrok for the pointer.)

The problem is that so far, in China or in the U.S., solar energy remains an unprofitable business. The worst part is that even when the government provides incentives, which result in an overflow of capital to the industry, solar remains fairly unprofitable. It is unlikely to change soon. As David  Kreuzter notes in the Wall Street Journal this morning, the “we-are-about-to-become-profitable” argument made by the wind- and solar-energy industry in order to keep the subsidies flowing has been with us for a long time:

The argument that wind and solar energy are on the verge of being cost-effective is an old one, dating at least to the early 1990s. And yet we are still handing out subsidies that supposedly will push them over that line in just a few more years. It’s time to stop. With a phaseout or not, extending subsidies is just more of the same.

In fact, in his book The Triumph of Politics published in 1986, former office of management and budget director David Stockman documents all the subsidies that solar and wind were already receiving back then. It’s been over 30 years, and yet the industry is not profitable.#more#

Here are some data points about the U.S. government’s involvement in the solar industry:

A Government Accountability Office report shows that there were 65 federal initiatives to support solar technology in 2010 and 2011.

During that time, officials from six federal government agencies reported obligating $2.6 billion for more than 1,500 solar energy projects, with more than 90 percent of these obligations coming from the Department of Energy.

Of the $2.3 billion the DOE spent those two year, most — $1.7 billion — went to fund the Section 1705 loan guarantee program, the very same program that gave taxpayer backed loans to failed solar companies like Solyndra and Abound Solar.

Read the whole thing here.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. Her primary research interests include the U.S. economy, the federal budget, homeland security, taxation, ...

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